President Obama and G-20 leaders meet in Los Cabos for two days of talks

President Obama arrives in Los Cabos for G-20 summit
President Obama arrives in Los Cabos for the G-20 summit Photo – J. Reed/Reuters
Mexico’s strengthening economy underlies the glossy veneer on display as President Felipe Calderón hosts the Group of 20 leaders of major industrialized and emerging economies at the luxury beach resort of Los Cabos Mexico on Monday and Tuesday.

The G-20 is meant to serve as the premier voice of economic coordination, representing not just traditional powers but emerging economies. Its members are Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, South Korea, Russia, Saudi Arabia, South Africa, Turkey, the U.S. and the European Union.

In contrast to the widening crisis in the euro zone, which will be the focus of the talks, Mexico will be able to point to 17 years of macroeconomic stability, low inflation, manageable debt, an open economy and increasing competitiveness.

The gross domestic product expanded 3.9 percent last year, ahead of Brazil’s growth of 2.7 percent. Brazil, long seen as Latin Americas “economic gem”, has lost their place in the sun partly due to debt-burdened consumers and the erosion of industrial production, which is tied to the recent strength of Brazil’s currency, the real. On top of that, slowing global growth, particularly in China, has pushed down prices of the commodities that Brazil exports.

Contrast that to Mexico, where Mexican factories are exporting record quantities of televisions, cars, computers and appliances, replacing some Chinese imports in the United States and fueling a modest expansion.

And there are encouraging signs for the years ahead. Nissan, Mazda and Honda have all announced that they would build new plants in Mexico, and new investments in aerospace and electronics are also on the horizon. With the high prices of petroleum, many manufacturing plants that moved to China over the past decade are returning to the United States and Mexico.

[pullquote_right]“Stars appear to be increasingly aligned for an economic outperformance” by Mexico, a report in May from Nomura Securities concluded. “A changing of the guard is slowly but surely taking place.” [/pullquote_right]

In one of the recent Presidential debates in Mexico, the frontrunner, Enrique Peña Nieto, began the debate by asking the people if they were better off and answering the question himself: “Surely, not”

One reason for the malaise is Mexico’s drug war. The sight of miles upon miles of factories outside the industrial capital of Monterrey attracts far less attention than the image of nine bodies hanging from a bridge in the border city of Nuevo Laredo or 49 bodies found on Mother’s Day in a suburb of Monterrey. Mexico’s Finance Ministry has estimated that the violence shaves at least 1 percentage point from G.D.P. growth.

Even though Brazil’s homicide rate trumps Mexico’s, the gory nature of the killings in Mexico and Mr. Calderón’s use of the military to combat traffickers have focused more attention on the death toll here.

And Mr. Peña Nieto is correct that growth has yet to trickle down to many workers. Real wages have barely increased. Another of the reasons that Mexico has captured market share from China is the narrowing gap between Chinese and Mexican wages.
Mexico’s political paralysis has stopped it from taking effective measures to break up monopolies, rewrite labor laws, collect more taxes and pry open the world’s most closed oil company, changes that would add 2.5 percentage points to its growth rate, the Mexican Institute for Competitiveness estimated.
But still, despite these problems, Mexico’s economy has grown as the United States has been mired in recession. Mexico is largely seen now as a middle class country rather than third world as their detractors continue to claim.

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